MAPI: Durable Goods Down, But Outlook Still Up

Manufacturers Alliance for Productivity and Innovation (MAPI)

Analysis from Daniel J. Meckstroth, chief economist for the Manufacturers Alliance for Productivity and Innovation (MAPI):

The U.S. Census Bureau reports that durable goods orders fell 1 percent in January 2014. The decline in January follows a large 5.3 percent decline in December. While on the surface the report seems alarmingly negative, it is not. Civilian aircraft orders declined 20.3 percent in January and 22.3 percent in December; aerospace has an extremely volatile order book month to month but its backlogs extend many years into the future.

Frankly, current orders are virtually irrelevant to current activity. What does matter is that orders for primary metals and motor vehicles and parts were down in January but orders for fabricated metal products and computers and electronic products were up.

The best economic indicator for business equipment activity in the report is nondefense capital goods orders excluding aircraft, which were up 1.7 percent in January after falling 1.8 percent in December. The durable goods report basically reflects the findings of the industrial production report and the employment report for January. Business activity was adversely affected by the severe winter weather and is correcting for excess inventories built up in the fall. We believe the pace of growth in industrial activity will slow in the first quarter before resuming moderate growth for the rest of the year.